Microsoft shares fell 3% on Tuesday after the company posted third-quarter earnings that were stronger than analysts expected.

This is how the company did it:

  • Merits: Adjusted for $ 1.95 per share versus $ 1.78 per share as analysts expected, Refinitiv said.
  • Revenue: According to Refinitiv, $ 41.71 billion versus $ 41.03 billion as analysts expected.

The software and hardware manufacturer reported annualized sales growth of 19% for the quarter ended March 31, according to the statement. This is the largest quarterly increase the company has seen since 2018, in part due to the surge in PC sales driven by coronavirus-induced bottlenecks last year.

The company announced that its Azure public cloud, which rivals market leader Amazon Web Services, has grown 50%, faster than analysts’ anticipated 46% growth. This was found in a CNBC review of 14 stock research notes. Azure revenue rose 50% in the previous quarter. Microsoft does not report Azure earnings in US dollars.

Microsoft’s Intelligent Cloud segment had revenue of $ 15.12 billion, up 23% year over year and above the FactSet consensus estimate of $ 14.92 billion. Intelligent Cloud includes Azure, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Services.

The Productivity and Business Processes segment, which includes Office, Dynamics, and LinkedIn, contributed $ 13.55 billion to revenue, up 15% and more than the FactSet consensus of $ 13.49 billion.

The company’s More Personal Computing unit, which includes Windows, games, devices, and search, had sales of $ 13.04 billion. That was up nearly 19% and more than the consensus of $ 12.55 billion. Technology research firm Gartner estimated earlier this month that PC makers shipped nearly 70 million units in the quarter, 32% more than the year-ago quarter. This is the fastest growth since Gartner began tracking the PC market in 2000. This benefits Microsoft’s sales of Windows licenses to PC manufacturers, which grew by 10%.

The result was greater than Microsoft itself predicted. In January, Amy Hood, Microsoft’s chief financial officer, demanded that device manufacturers’ Windows license revenues be in the low single digits.

Microsoft announced in the quarter that it had won an order from the US Army worth up to $ 21.9 billion in a decade for augmented reality headsets based on its latest HoloLens device. The company has also released patches to fix vulnerabilities in Exchange Server’s on-premises email and calendar software exploited by Chinese hackers. It also completed the acquisition of video game maker ZeniMax Media, valued at $ 7.5 billion.

In terms of forecasts, the analysts surveyed by Refinitiv expect sales of USD 42.98 billion for the fourth quarter of the fiscal year, which would mean annualized sales growth of 13%.

Regardless of the post-close shift, Microsoft shares are up 18% since the start of the year, compared to up roughly 12% for the S&P 500 over the same period.

Executives will discuss the results with analysts and issue guidelines for a conference call starting at 5:30 p.m. ET.

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